Working Capital is the backbone of all small businesses and is used to cover daily operating business expenses. It is a symbolic scale used to measure a company’s liquidity, overall health, and short-term financial efficiency. Cash flow is a necessity used to cover short term inventory, purchases, payroll, and many other day-to-day operations.
Working capital financing can provide financial aid for short-term problems, and strategic use of the loan can help with long term financial problems. The complicated loan application process of traditional lenders makes securing small business capital loans a bit challenging. Usually, traditional lenders ask for a good credit score, extensive guarantee, collateral, and other nitty-gritty.
Apply for a working capital loan at Merchant Advisors, and carry out daily operations with ease. You can benefit from revolving credit by applying for a Working Capital Line of Credit. Increase your annual revenue and take your business to other heights.
What is a Working Capital?
In technical terms, working capital is a sum left after subtracting current liabilities from current assets. On the other hand, in the layman language, working capital is often pronounced as an operational capital. Working capital of any business can give you an insight into the company’s financial standing.
Current Assets – Current Liabilities = Working Capital
Current Assets are defined as the cash or any other asset likely to be turned into cash at the end of the coming fiscal year. Current liabilities cover any debt that an owner has to pay in the coming 12 months.
If your current assets are greater than the current liabilities, you have positive working capital. This means you can invest in as many future projects you want and increase the worth of your business.
On the other hand, if current liabilities are greater than the current assets, you need a working capital loan for you to have negative working capital.
This loan can act as a temporary fix for your short-term financial instability. It provides excessive access to funds to cover inventory purchases, payroll, and daily financially dependent tasks.
How to calculate the required amount of Working Capital?
Don’t shoot blindly; don’t apply for a loan before considering the real amount you need as working capital. Because flying blindly won’t do you any good. Usually, most of the business lenders look for enough money that will cover their daily operation costs, pay the existing debts and some backup money to cover the expenses of new projects.
So, the important question being: How does one know his/her required working capital amount?
There is a simple way to find the working capital ratio, just put the numbers in the following equation.
Working Capital Ratio = Current Assets / Current Liabilities
According to the experts and researchers, the ideal value of the working capital ratio relies between 1.2 and 2.0. If the working capital ratio is below 1.2, you need help from Merchant Advisors’ funding.
But if the working capital ratio comes out to be above 2.0, it an alarming situation. This figure calls for future investments.
So, find out where you stand and take the necessary steps.
Reasons to apply for a Working Capital
Working Capital is a nutrient for your small business, it keeps the mundane operations working. With an insufficient working capital, it would be hard to manage a business in a streamlined manner.
The need for working capital is equivalent for any kind of business. Every kind of business be it a construction business or a barber shop business, it will become dysfunctional without adequate working capital.
One can utilize the funds from small business capital loans in innumerable ways:
The financial deadlines don’t wait for the pending invoices to get cleared so as an owner you can make payments on time. A working capital loan can keep your business running when your business has some invoices pending. A loan will not compromise the growth of the business, it will eradicate the hindrances caused by inconsistent cash flow.
No matter how authentic is the number of sales estimation, a surprising turn of events is inevitable. So, if your business hasn’t generated enough profit per your estimation, a working capital financing can bridge the financial gap. Moreover, if the nature of your business is seasonal this loan can provide you the funds when the sales are steep. For example, if your business earns a noticeable profit in the Halloween or Christmas season, you need adequate funds to last the rest of the term. So, a short-term capital loan will be your source of money in the offseason.
There is no denying the hardships a business owner faces when taking a step in a new venture. The traditional loans are hard to land hands on! In addition to this, these lenders have a rigorous chain of prerequisites that might be hard for startup businesses to pass.
Luckily, Merchant Advisors provide small business capital loans to small business owners stepping into this industry for the first time. Use the money to pay the salaries of your dedicated employees, purchase accessories to keep the shelves stacked and take on new projects to certify the business growth.
Usually, business owners are reluctant to take up new projects because they are running low on the working capital. In result, the growth and expansion of business are decelerated.
The loan can offers you enough funds to buy updated tools needed to embark on new projects. You invest in your employees’ training as well to keep them informed regarding current business trends.
TLife is uncertain, there is no debate in that –business is no different! As a business owner, you should be prepared for everything that life throws at you. We, Merchant Advisors, have comprehended every possible outcome and thus we offer capital financing in case your biggest client bid you farewell, or you get a bankruptcy notice from banks.
We pray you don’t have to face any misfortune but know that we have your back.
Types of Working Capital Loan
One can generate enough revenue and earn enough profit if one has time until the end of the world. But this doesn’t happen in the real world, if you are not moving with enough pace then you and your business will become obsolete.
So, here we have documented a few types of loans suited perfectly well for every kind of the business. Especially if you run a seasonal business then a working capital financing can benefit you the most. Before making a final decision, do your research to find the loan to carry out daily operations in a proper fashion.
If your business is under a temporary financial crisis the short-term loan can pay enough working capital for payrolls and necessary purchases. These loans are easy to qualify for even if you have a poor credit score, or haven’t been running a business for that long.
When applied for a Short-Term loan, the borrower gets the decided payment in one time – a lump sum. And it’s to be paid back in full over a limited period time, usually in 12 months. With a good personal and business credit score, you can get approved without providing any collateral.
Here the interest is only applicable on the amount you have withdrawn, in most of the cases it falls around 1-2%. Lines of Credit puts the wheel in the borrower’s hand, as a borrower you can take out as much money as you need and whenever you need.
The excessive stream of cash flow can act as a buffer in the hour of financial struggle. If you find it hard to make a rough estimate of how much money you will be needing to solve your financial troubles, apply for Working Capital Lines of Capital so can you can have a backup plan to rely on.
SBA Loans can change the entire fate of your business, their qualification process is a bit meticulous and thus some businesses fail to qualify. But if you a stellar credit score apply for an SBA Loan, you can have the loan ranging from $5,000 to $5 million.
Invoice Financing is for the business owners who are tired of waiting for their customers to clear their pending invoices. This might put a dent in the cash flow, preventing business owners to invest in new projects.
Here, the lenders will take a hold of your unpaid invoices and will pay you accordingly. So, if slow paying customers are bothering, invoice financing can be your way out.
Merchant Advisors’ Merchant Cash Advance works like a credit card, the lender will take a huge bit of money out of your credit card sales. If your sales are fluctuating, and you are worried about not making payment on time, MCA will suit you.
Depending on the highs and lows of the business, the lender will take your daily credit card sales. MCA sounds like an easy option to qualify for but it’s among the most expensive ones.
Comparison of Compatible Working Capital Loans
Merchant Advisors care for their clients, here is the comparison of the APR and eligibility criteria of the above mentioned 5 types of loan:
APR: 6 -99%
Eligibility Criteria: 3 months in business, consistent cash flow, and poor credit score is acceptable
APR: 7 – 65%
Eligibility Criteria: 500+ personal credit score, and at least 1 years in business.
APR: 6 – 11%
Eligibility Criteria: 660+ credit loans, and at least 2 years in business.
APR: 1 – 6%
Eligibility Criteria: Available unpaid customers’ invoices
APR: 1 – 6%
Eligibility Criteria: Available unpaid customers’ invoices
APR: 1.15 – 1.20
Eligibility Criteria: 6 months in business, and 4 months of credit card statement.
Important questions to ask your lender before applying for a Working Capital Loan
Money is a fickle necessity, borrowing money from alternative and traditional lenders requires proper consideration. Just like any major decision of life demands some homework, you should do enough research before applying for a loan. We have jotted down a couple of important questions that as a borrower you should ask your lender so that you can take a calculated risk.
A business loan isn’t something that you should take lightly, before applying for a business loan, make sure you have exhausted every other option. You should try to hold yourself back from making unnecessary purchases.
Map out the demand for your services and products and don’t stock up your shelves without a reason. You can even work on the improvement of your advertising and marketing campaign. Once you have experimented with the said options, and no improvement is evident then you should apply for a business loan.
No alternative lender will give you the money without looking at your business. So be clear in your head and devise a realistic plan of how you will invest the money from business loans in your business.
This is only possible when you are clear on the financial needs of your business. If you need money to expand your business, then we advise you devise a business expansion plan. Want to stock up on inventory? Use the funds wisely and be certain about the loan is the need for your business.
Applying for the loan, utilizing the funds and making repayments on time demands consideration and dedication. You can’t apply for the loan for an unlimited supply of money, it runs deeper than this. Your credit score will be severely damaged if you fail to make repayments on time.
So, before you make the final decision ask yourself: Is it worth it? Can your business generate enough money with the help of the business loans to pay the debt in time?
Do you know all the rates and fees involved in the loan you signed up for? We suggest you ask your lender about the obligation fee, hidden costs, factor fee, APR, application fee and many apart from these.
At Merchant Advisors help from a dedicated financial advisor is available, with his/her assistance you can assess your current financial standings, and find the suitable loan.
A-Grade Loans To Increase Working Capital
There are ample alternative lenders available in the market making it quite easy to find an appropriate loan for your business.
We value your hard work so here we have generated a list of loans suitable for small retail businesses, mega-scale businesses, and B2B businesses.
If you want a loan that can cater to the highs and lows caused by seasonal fluctuations, many alternative lenders offer working capital financing for small business retail.
On Deck has been in the lending business for so long, it is familiar with the needs and requirements of the small business owners. Their flexible payment terms have left a noticeable mark among its followers and since its birth, it has helped a significant number of business owners.
On Deck believes in the fast lending and funding, you can get a sizeable amount of money for the loan.
On Deck offers Short-term business loans and Lines of credit to help with the ongoing daily operations on financial metrics. If you have a fair credit score and business is generating enough annual revenue and profit, the chances of loan approval are high.
Just like ourselves, Merchant Advisors, Kabbage is willing to overlook your bad credit score if you have a concrete business plan and are willing to take every decent step to ensure the prosperity of your business.
Kabbage offers lines of credit, and their flexible payments are the reason they are popular among their users. You can pay them on your own terms; on a weekly and monthly basis.
Fundbox is an excellent choice if you are running a B2B business and are tired of slow paying customers. Fundbox offers lines of credit and invoice financing with flexible payments terms and rapid funding.
Although it demands a balance sheet and a fair credit score, if you qualify the said criteria then the course of business is about to change.
American Express Merchant Financing
These offers are exclusively for American Express credit card users, AMEX will offer a lump sum of money to the borrower and you can repay the amount from your credit card transactions.
As you can see, the market provides various financing options so that you can deal with the lack of funds with ease.
Working Capital Financing –A Perfect Financial Fix
From the financial crisis caused by lack of unpaid customers’ invoices to lack of money generated because of the dips in the seasonal sale, working capital can help fix any financial crisis.
So, compare the rates and interests of the most compatible loans to find the best suited one for your small business.
Merchant Advisors is determined to provide fast track funding and loan approval by keeping the demands and nature of business in mind. Working capital funding don’t ask for collateral so the APR and interest rate will be a bit higher for these loans.
So, contact an expert at Merchant Advisor and get as many quotes as you want till you are satisfied.